Consultants expect further closures of Group I base oil plants

12 October 2010 12:15[Source: ICIS news]

DUBAI (ICIS)--More Group I base oil plants face permanent closures as most are located at the least viable refineries in the Atlantic basin, according to consultants speaking at an industry conference on Tuesday.

Group I base oils would still represent 52% of global consumption by volume in 2015, but premium transportation oils would increasingly be produced from Group II and Group III base oils in a more specialised market, she said.

Stephen Ames, managing director of SBA Consulting, said the past 18 months had been a turbulent period in the global base oils market and for many companies, it had been difficult.

Although demand for base oils was growing again, ?xml:namespace>Ames said, idle industry capacity would still represent a supply buffer of 25-26% at the end of 2010.

Ames predicted that 7.5m-10.5m tonnes/year of sustainable base oil production capacity would have to close by 2015.

But decisions about which plants would close depended more on the economics of fuel production than on than on the dynamics of the base oils market, Ames said.

Demand for fuels derived from crude oil had already peaked in North America and Europe, with biofuels and other alternatives contributing to lower throughput at refineries in the Atlantic basin, he said.

At the same time, demand for petroleum-based fuels was increasingly diesel-oriented, Ames said, noting that Group I base oils and diesel compete for the same feedstock, vacuum gasoil (VGO).

New fuel refineries in the Middle East and Asia would add to downward pressure on refining margins in the Atlantic basin, Ames said.

Around 2m bbl/day of fuel refining capacity needed to close and stay closed in Europe and North America, and he said he expects that this would happen sooner rather than later. Base oil plants at the least efficient refineries were at risk, he added.

Claxton expected that total global base oil production capacity would remain constant until 2015. Increased production from new Group II and Group III plants would be offset by Group I shutdowns, she said.

Shell’s and Qatar Petroleum’s joint-venture gas-to-liquids project in Qatar was the largest of five new base oil production facilities in the Middle East and Asia, which would together bring an additional 60,000 bbl/day of base oils capacity in the period 2012-2014, she said.

The higher viscosity index of base oils from the Qatar gas-to-liquids refinery and other Group II and Group III plants would give them an advantage in the market for premium transportation and industrial oils, Claxton said.

There would still be a market for Group I base oils in standard applications, she insisted, and Group I plants would remain an important source of brightstock and paraffin wax, which are not co-produced with Group III base oils.

She noted that prices for brightstock and wax were higher than for Group III base oils.